Chapter 14

Question

Requirement 1

Requirement 2

Mary Walker, president of Rusco Company, considers $30,000 to be the minimum cash balance for operating purposes. As can be seen from the following statements, only $25,000 in cash was available at the end of this year. Since the company reported a large net income for the year, and also issued both bonds and common stock, the sharp decline in cash is puzzling to Ms. Walker. Rusco Company Comparative Balance Sheet at July 31 This Year Last Year $ 25,000 212,000 259,000 14,000 510,000 120,000 880,000 215,000 665,000 $1,295,000 $ 45,000 223,000 202,000 27,000 497,000 170,000 760,000 193,000 567,000 $1,234,000 Assets Current assets: Cash Accounts receivable Inventory Prepaid expenses Total current assets Long-term investments Plant and equipment Less accumulated depreciation Net plant and equipment Total assets Liabilities and Stockholders' Equity Current liabilities: Accounts payable Accrued liabilities Income taxes payable Total current liabilities Bonds payable Total liabilities Stockholders' equity: Common stock Retained earnings Total stockholders' equity Total liabilities and stockholders' equity $ $ 184,000 9,000 50,000 243,000 230,000 473,000 241,000 17,000 44,000 302,000 120,000 422,000 677,600 144,400 822,000 $1,295,000 650,000 162,000 812,000 $1,234,000 Rusco Company Income Statement For This Year Ended July 31 Sales Cost of goods sold Gross margin Selling and administrative expenses Net operating income Nonoperating items: Gain on sale of investments $25,000 Loss on sale of equipment (8,000) Income before taxes Income taxes Net income $1,000,000 625,000 375,000 267,500 107,500 17,000 124,500 37,300 87,200 $ The following additional information is available for this year. a. The company declared and paid a cash dividend. b. Equipment was sold during the year for $52,000. The equipment originally cost $110,000 and had accumulated depreciation of $50,000 c. Long-term investments that cost $50,000 were sold during the year for $75,000. d. The company did not retire any bonds payable or repurchase any of its common stock. Because the Cash account decreased so dramatically during this year, the company's executive committee is anxious to see how the income statement would appear on a cash basis. Required: 1. Using the direct method, adjust the company's income statement for this year to a cash basis. 2. Using the data from (1) above, and other data from the problem as needed, prepare a statement of cash flows for this year. Required 1 Required 2 Using the direct method, adjust the company's income statement for this year to a cash basis. (Adjustment amounts that are to be deducted should be indicated with a minus sign.) Rusco Company Direct Method of Determining the Net Cash flows from Operating activities Sales $ 1,000,000 Adjustments to a cash basis: 1,000,000 Cost of goods sold Adjustments to a cash basis: Selling and administrative expenses Adjustments to a cash basis: Income taxes Adjustments to a cash basis: $ 1,000,000 Required 1 Required 2 Using the data from (1) above, and other data from the problem as needed, prepare a statement of cash flows for this year. (Cash outflows and amounts to be deducted should be indicated with a minus sign.) Rusco Company Statement of Cash Flows For the Year Ended July 31, 2014 Operating activities: Cash received from customers Less cash disbursements for: Total cash disbursements Investing activities: Financing activities: Beginning cash and cash equivalents Ending cash and cash equivalents $